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Core Laboratories Delivered High-End Earnings in Q1

Oil prices crashed toward the end of 2018. That forced oil companies to slow down their drilling pace, which negatively impacted oilfield service activity levels during the first quarter. Core Laboratories (NYSE: CLB) wasn't immune to this slowdown as its first-quarter results declined compared to last year. However, its results did come in toward the high-end of its guidance range. Meanwhile, an improvement in its core offshore and international markets should drive growth over the next few quarters.

Core Labs results: The raw numbers

Metric

Q1 2019

Q1 2018

Year-Over-Year Change

Revenue

$169.2 million

$170.0 million

(0.5%)

Adjusted net income

$19.7 million

$25.2 million

(21.9%)

Adjusted earnings per share

$0.44

$0.57

(22.8%)

Data source: Core Labs.

What happened with Core Labs this quarter?

Oil price volatility weighed on results:

While Core's revenue slipped less than 1% year over year, it was above the high end of the company's $164 million to $168 million guidance range.

The company's production enhancement segment weighed on revenue during the quarter as its sales declined 4.8% to $65.9 million. That was mainly due to the slowdown in completing shale wells in North America because of crashing oil prices during the fourth quarter.

Core's reservoir description business partially offset the weakness in production enhancement. Overall, revenue in the segment ticked up 2% year over year to $103 million thanks to an improvement in offshore and international markets.

While adjusted earnings dove more than 20% year over year, they came in near the top end of the company's $0.42-$0.45-per-share guidance range. That's due in large part to higher production enhancement margins. Meanwhile, earnings would have been even stronger if it weren't for the closure of a portion of the Houston Ship Channel during the quarter due to a fire, which negatively impacted the company's high-margin crude-oil-assay laboratory testing business.

Core Labs generated $20 million of free cash flow during the quarter. That marked the 70th straight quarter where Core produced free cash.

Silhouette of an offshore oil drilling rig.

Image source: Getty Images.

What management had to say

Core Lab's management team wrote in the earnings press release that the company "continues to see improvement in the future for international industry activity directly related to technology and analytical services provided by the company's reservoir description segment." They noted that the company participated in highly specialized core and reservoir fluids services in many regions during the quarter. They highlighted the fact that "robust activity continues" in South America for Core thanks to development programs offshore Guyana while opportunities are emerging in Brazil.

Looking forward

Core sees its results improving during the second quarter, due mainly to the fact that the first quarter is traditionally a seasonally slower one for the company. While oil prices have rebounded sharply this year, the company doesn't anticipate a near-term activity boost because drillers are remaining conservative with capital spending. Given those factors, it sees revenue rebounding to a range of $172 million-$175 million. That higher revenue, as well as the anticipation of higher margins, should push adjusted earnings to between $0.47 and $0.50 per share.

On a more positive note, the company does see further improvement in activity levels later in the year, especially in offshore and international markets. That's because oil companies sanctioned several large projects that should start ramping up. That leads Core to believe that international growth will "reach mid to high single-digit levels" this year.